Happy Friday, traders. Welcome to our weekly market wrap, where we take a look back at these last five trading days with a focus on the market news, economic data and headlines that had the most impact on gold prices—and may continue to into the future—as well as the charts for silver, the US Dollar and other key correlated assets.
Gold prices are poised to end a week of tumultuous trading and headlines at a hefty premium to where they began Monday’s trading. Even after a brief rally of risk-appetite among investors set the yellow metal back, gold should close the Friday sessions within touching distance of a major level at $1900/oz.
So, what kind of week has it been?
Financial markets this week have been getting shoved around and whipsawed by the headlines, mostly around persisting tensions at the Ukrainian border between Russian, and American/NATO military forces.
Primary in the headlines this week as been the rough sailing for equity investors as a result of markets being roiled by geopolitical risk and drama, but gold prices has been a winner, on net, as storm clouds have gathered.
Investors were sweet on gold again on Monday, particularly during the US trading hours, as the yellow metal provided a key safe-haven for investors and managers looking to roll out of “riskier” assets like equities while watching to see if the heat in Eastern Europe would catch a spark. The risk-off mood that pervaded markets offered a tailwind to gold’s spot price, which traded to $1870/oz by the end of New York’s day before briefly popping to a high just shy of the $1880s during Asia’s session.
Barring any sudden shifts before the very end of the week, Tuesday’s trading sessions represents the only constructive day of trading for US equity markets as investors ran with a burst of positivity on early-morning reports that the Russian Defense Ministry was ordering a number of troops back from “training exercises” around the Ukrainian border. US Treasury yields jumped on the reports during the European morning sessions, finally driving the US’ 10-year Note’s yield above 2%, and the key American stock indexes would each climb by 1% or more on the day. The temporary relief of geopolitical pressure on markets weighed on inert safe havens like gold, which fell by nearly $30/oz in the spot market before stabilizing support during the US market hours.
Of course, given the constantly updated nature of online news media these days, it’s virtually impossible to find a reputable news source’s reporting on Tuesday’s news that doesn’t include a tag about NATO or the White House (or both) expressing some level of incredulity about Russia’s claims. Equity markets managed to lock in their gains at the close before optimism really began to wane among observers and investors; but by Tuesday night, into the Wednesday overseas sessions, any hope that US/Russia tensions were suddenly cooling had been dashed.
Markets on Wednesday were tepid, at best; Mounting reporting that Russia’s troops were not likely being drawn back in a meaningful way, but were possibly growing in number, kept US stocks from climbing at all (although, for the day, stocks managed to trade sideways more than to fall.) A more immediate impact of the unwinding of positivity was felt in gold, along with other primary safe-havens. As investors’ fear of conflict resurfaced, the gold price chart managed a steady climb higher and by Wednesday afternoon had regained most of the losses struck the morning before. It’s been clear from this point up until Friday’s lunch hour, investors have been searching out the best safe-havens to settle back into in case there’s another week—or more—of geopolitical risk hanging over markets.
Since the midweek backslide into fear and uncertainty, US officials have turned focus towards managing expectations that things might be cooling towards a calm resolution. Markets again managed to close their session before concern really mounted on investors’ outlook, but Thursday’s sessions were marked by gold and US Treasury Bonds benefiting from a massive risk-off swing in markets. Investors and mangers rushed to safety through the day, and gold surge to new levels for the week as the US 10-year yield slid back below 2.0%. Equity markets were slammed through the day, with the NASDAQ and S&P 500 indexes dropping by more than 2%.
As the week comes to a close on Friday with the diplomatic corps of the Western powers and Russia working to defuse the Ukrainian border, we’re finally starting to see some degree of resistance against gold’s rally as the yellow metal has been stymied at the key psychological level of $1900/oz. Gold prices absorbed an effort to sell of the gains during Asia’s Friday session and have rebounded to the neighborhood of $1895, but there seems to be little drive to break the heavy line. This will leave gold exposed to the risk of profit taking at the end of the day if not only short-term punters, but also longer-held gold positions are unconvinced that the yellow metal could make meaningful pusher higher.
Can’t Forget About the Fed
For traders in gold or other precious metals investments, geopolitical tension and worries of war have been the primary point of interest this week, but not the only one. Wednesday afternoon saw the release of the discussion minutes for January’s FOMC meeting, which set the tone and investors’ expectations firmly in place for the new rate-hiking cycle to kick off at the March meeting. Economists and Fed watchers parsed through the minutes to find any clues about how reactive the Fed’s policy plan might be to still-high measures of inflation in the US economy. At the end of the day, given all the attention turned towards Ukraine, there wasn’t a great deal of market movement that we could ascribe specifically to processing of information from the Fed.
Still, calculating how the Fed might move in the near- to medium-term is important for any useable model for gold valuations in the month ahead. The minutes, with all their references or acknowledgments from various FOMC officials of the importance of “flexibility” in the policy path, do seem to confirm that important participants and blocs within the committee would be willing to go somewhat farther than what’s perceived as the top “conventional” speed for the central bank in hiking rates (0.25% hikes, executed at every-other meeting.) That’s about where the clear signals stop, however. What we still don’t know is whether officials will be willing to be more aggressive from the start (presumably in March,) or through which function they will prefer to act more quickly in hopes of stifling inflation pressures: by hiking by +0.50% or more, or by hiking at consecutive meetings—or both.
In the textbook for gold trading, if you can find such a thing, the most likely view to be presented is that any form of “unconventional” hiking from the Fed will be decidedly negative for gold prices in the immediate- to medium-term, given that it should compel a strong jump in interest rates and yields that would strip away some of gold’s value proposition. A look at our coverage in recent weeks, however, will show that gold prices have remained resilient as investor concern about the same high inflation that might compel the Fed to take bigger steps forward along the rate path is creating a demand for gold (as inflation protection) that outstrips the headwinds from higher rates in the near future.
These key questions about the Fed’s next moves—and, much more so, the next steps or stumbles as diplomatic operatives work to calm and abate tensions between the US and Russia—will be the deciding factor in the market path at the end of this week. The same will likely be the case for next week, which will be shortened in the US by a market holiday on Monday. If there’s no new news out of Eastern Europe, and no bombastic remarks from Fed officials pushing policy—we might see the “natural forces” of the markets come to play. For downtrodden equity markets, this could mean a stream of investors stepping in to “buy the dip” and turn Friday green; For assets like gold that have move sharply higher in the last 48 hours it could mean pressure from short-term profit-taking before we head into the weekend.
For now, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I’ll see everyone back here on Tuesday for our preview of the week ahead.